The support package will cost an estimated £15bn. (Image: ParliamentTv)
Chancellor Rishi Sunak has announced a fresh package of measures to help households with the spiralling cost of living crisis as the government faces intense pressure over inflation and the Sue Gray report.
Earlier this week, Ofgem boss Jonathan Brearley wrote to Sunak to announce the energy price cap is expected to rise to £2,800 in October. That would push inflation to around 14 per cent for the poorest families, analysis by the Institute for Fiscal Studies (IFS) suggests.
The government has now bowed to pressure and announced a further cost of living package to add to the one Sunak confirmed in his Spring Statement in March, which included a cut to fuel duty and reducing the basic rate of income tax
This new package of measures – costing around £15bn – aims to address some of those criticisms and deliver more help to people in need. Here’s your run-down of the new help available – and what it means for you.
Ministers have been flip-flopping over the idea of introducing a windfall tax on oil and gas companies for months, with reports of a “split” in the cabinet between Boris Johnson and Sunak.
A “windfall tax” is a tax levied on any unexpected profits which are usually deemed to be unearned.
During the energy crisis, oil and gas companies have made record profits due to the cost of wholesale energy spiking, while ordinary families have struggled to survive during the cost of living crisis.
The chancellor has now announced that the government will be implementing what Sunak called an “energy profits levy” on oil and gas companies, taxing their profits at 25 per cent.
Sunak said that an “investment allowance” will be built into the levy to encourage oil and gas companies to reinvest their profits into the UK.
The tax will be phased out when oil and gas prices return to normal levels, Sunak said.
As the Chancellor announced this measure, he was heckled from the opposite benches by Labour MPs, who have been calling for a windfall tax for several weeks.
The money will go towards the government’s support package for those on the lowest incomes.
In a measure that will cost the Treasury an estimated £5bn, the chancellor announced a one-off payment of £650 which will be sent to those in receipt of state benefits.
The payment will be paid in two lump sums, the first from July and the second in Autumn, with payments sent directly to recipients.
In addition to this, pensioners who receive support for their heating costs via the Winter Fuel Payment will be provided with a one-off “pensioner cost of living payment” of £300 later in the year.
Disabled people who receive non-means tested disability benefits will receive a one-off cost of living payment worth £150.
Household support fund
The Household Support fund is a fund which local councils can use to help people who are struggling to pay with everyday costs.
Sunak has announced that the funding for this support will be increased by half a billion pounds in October.
Turning the energy loan into a grant
Earlier in the year, the government announced it would be awarding a £200 rebate on energy bills for millions of households in October, when the energy price cap is now expected to rise to £2,800.
The government faced criticism, however, over the fact this “rebate” was actually a loan, with repayments taken from future bills.
The chancellor has now announced that the £200 loan will be scrapped. Instead, the loan will be turned into a grant and doubled to £400. All households, regardless of income, will receive the rebate.
The one-off payment is likely to be delivered in October, with further details yet to emerge about how this will be paid.
In April, benefits were uprated by 3.1 per cent – a rate which fell behind inflation, which has now risen to 9 per cent.
The chancellor announced that benefits will be uprated again later in the year, in line with the inflation rate as it stands in September.
Do the measures go far enough?
Responding to Sunak’s announcement, shadow chancellor Rachel Reeves criticised him for taking so long to announce the measures and repeatedly U-turning on the introduction of a windfall tax.
Reeves added the government should have gone further, introducing measures such as spiking national insurance and cutting business rates.
“We have seen nothing to suggest that this Conservative government has the ideas or the energy to tackle the challenges that we face as a country,” Reeves said.
Reeves also added that some households are awaiting support promised earlier in the year, such as the £150 council tax rebate.
Paul Johnson, director of the Institute for Fiscal Studies, warned ahead of Sunak’s announcement that offering a universal payment would mean a lot of the money would go to households who “don’t desperately need it”.
He also warned putting billions of pounds into the economy at a time when prices were rising quickly “could stoke additional demand and make inflation much more permanent”.
The Big Issue is committed to helping readers make it through the cost of living crisis. Here’s where to turn for some real solutions: